i. basic philosophy on corporate governance, capital

CORPORATE GOVERNANCE HIROSHIMA GAS CO., LTD.

Last updated: June 24, 2016

Hiroshima Gas Co., Ltd. President: Kozo Tamura

Inquiries: +81-82-252-3001

Securities code: 9535

http://www.hiroshima-gas.co.jp

The Company’s corporate governance status is as described below.

I. Basic Philosophy on Corporate Governance, Capital Structure, Corporate Attributes and Other Basic Information

1. Basic Philosophy

Hiroshima Gas and the Hiroshima Gas Group operate under a management philosophy of “aiming to be a company that earns the trust of society.” To achieve constant growth of corporate value, we are always taking actions for maintaining and upgrading an effective corporate governance framework in order to ensure that operations are managed with soundness and transparency.

【Reasons for Non-compliance with the Principles of the Japan’s Corporate Governance Code】【Supplementary Principle 1-2-4 Use of electronic voting system and electronic voting platform, English-language translation of shareholder

meeting notice】

The Company will establish an environment that permits electronic voting and start using an electronic voting platform with the June 2016 ordinary general meeting of shareholders. In addition, the Company will continue to consider translating the shareholder meeting notices into English even though the percentage of foreign shareholders is small.

【Supplementary Principle 4-10-1 Appropriate participation and advice by independent outside directors】

For studies concerning selections and compensation of senior executives (chairman and president) and directors, the Company will not establish an optional advisory committee consisting primarily of independent outside directors. The Company selects senior executive and director nominees based on the knowledge, experience, capabilities, accomplishments and other characteristics of each individual. In addition, based on total compensation for directors that is approved by shareholders, the Board of Directors, consisting of seven inside directors and four independent outside directors, holds discussions and decides compensation for individual directors. The Company believes the current framework is functioning properly. However, to strengthen the responsibility to provide explanations, the Company will consider a framework to obtain the appropriate participation and advice of the independent outside directors.

【Supplementary Principle 1-3 Basic Strategy for Capital Policy,Principle 5-2 Establishing and Disclosing Business Strategy and Business

Plan】

The Company’s vision, medium-term management plan and business plan are available to the public on the Company’s website and through other channels. The Company does not disclose a basic policy for capital or targets for profitability, capital efficiency and other items. The Company will consider clearly explaining the specific actions that will be used to accomplish this vision and other goals by using terms and logic that are easy to understand.

【Disclosure Based on the Principles of Japan’s Corporate Governance Code】【Principle 1-4 Cross-shareholdings】

The Company’s policy is to hold shares as needed as one way to strengthen ties with business partners and contribute to communities and regions in order to increase corporate value from a medium to long-range perspective. The Board of Directors reviews cross-shareholdings every year. The Company submits votes for cross-shareholdings in an appropriate manner after examining each proposal based on whether or not the proposal will help increase the Company’s corporate value.

【Principle 1-7 Related Party Transactions】

When there is a transaction with a Company director that is defined as a conflict of interest by the Companies Act, the directors examine and reach a decision about the transaction. The directors then receive a report about subsequent events and the result. Once each year, survey forms are distributed to related parties to determine if there are related party transactions and to confirm and monitor the nature of these transactions, the terms and other items.

【Principle 3-1 Full Disclosure】

(1) Corporate philosophy, management strategies and business plans The Company’s corporate philosophy, management strategies and business plans are posted on the Company website as follows. CSR Report(http://www.hiroshima-gas.co.jp/com/ir/library/library_05.html (Japanese only)) Medium-term Management Plan(http://www.hiroshima-gas.co.jp/english/ir/management/management_02.html)

(2) Basic Philosophy on Corporate Governance The basic philosophy on corporate governance is explained in “1.1. Basic Philosophy” of this report.

(3) Policy and procedure for determining directors’ compensation The Board of Directors decides compensation for individual directors based on total compensation for directors that is approved by shareholders. The Company will consider the use of its stock as compensation for directors with executive duties and executive officers as a means of compensation linked to the Company’s medium to long-term performance. The purpose is to create a compensation framework that gives these individuals an incentive to achieve sustained growth and medium to long-term growth of corporate value.

(4) Policy and procedure for selections of senior executives and nominees for election as directors and corporate auditors Directors who have the outstanding knowledge and management skills needed to lead the Hiroshima Gas Group are selected as senior executives. Selections of director and corporate auditor nominees and executive officers are made by the Board of Directors in consideration of the overall balance of knowledge, experience and skills of the directors and the diversity of the directors.

(5) Explanations of selections and nominations of directors and others The Company provides explanations of the reasons for the selection of each individual nominated for election as directors and corporate

Revised

Revised

http://www.hiroshima-gas.co.jp/

http://www.hiroshima-gas.co.jp/

auditors in the reference materials included with shareholder meeting notices. But only personal histories, etc. are provided for other nominees.

【Supplementary Principle 4-1-1 Roles and Responsibilities of the Board (Authority Delegated to Executives)】

The Board of Directors makes decisions about matters prescribed by laws and regulations and the Articles of Incorporation. In addition, the Board of Directors Rules states that the directors make decisions about important matters concerning business operations, such as significant organizational changes, business plans, etc. The directors delegate all other authority for business operations to the president and chief executive officer and executive officers as prescribed in the Company’s internal rules. In addition, the directors delegate authority for ordinary business operations to the head of the organization for conducting business operations.

【Principle 4-8 Effective Use of Independent Outside Directors】

Four of the Company’s eleven directors are outside directors who meet the independence standards of the Tokyo Stock Exchange for independent outside directors. The purposes are to reinforce the soundness and transparency of decisions reached by the Board of Directors and to strengthen the supervisory function of the directors. All of the independent outside directors have outstanding knowledge as well as considerable expertise and experience concerning management and are able to perform their roles and duties from an independent standpoint.

【Principle 4-9 Independence Standards and Qualification of Independent Outside Directors 】

The Company selects as independent outside directors individuals who are outside directors as defined by the Companies Act and who meet the requirements for effective independence, including the independence standards of the Tokyo Stock Exchange.

【Supplementary Principle 4-11-1 Stance concerning the Balance, Diversity and Size of the Board of Directors】

The Board of Directors includes directors with executive duties who have sufficient knowledge, experience and skills involving sales, pipelines, manufacturing and administration and outside directors with outstanding knowledge as well as considerable expertise and experience concerning management. The Articles of Incorporation allow the Company to have up to fifteen directors. At this time, the Company believes that the proper size of the board is about eleven members.

【Supplementary Principle 4-11-2 Concurrent Duties of Directors, Corporate Auditors and Other Executives】

To properly perform their roles and fulfill their duties, the Company’s directors and corporate auditors exercise care to lim it positions as directors and corporate auditors at other publicly owned companies to a reasonable extent. Directors and corporate auditors have the following concurrent duties.

Representative director Hideki Fukayama West Holdings Corporation Outside director

Representative director Kozo Tamura Hiroshima Electric Railway Co., Ltd.

Outside director

Outside director Isao Sumihiro The Hiroshima Bank Ltd. Representative director

Outside director Masao Mukuda Hiroshima Electric Railway Co., Ltd.

Representative director

Outside director Hiroshi Segawa The Chugoku Electric Power Co., Inc.

Director

Outside auditor Yasutoshi Takei The Hiroshima Bank Ltd. Outside director

Outside auditor Yuji Tanaka Saibugas Co., Ltd. Representative director

【Supplementary Principle 4-11-3 Analysis and Assessment of Effectiveness of the Board of Directors】

To improve the effectiveness of the Board of Directors, the Company distributes a questionnaire to all directors and corporate auditors. Individuals give one of four evaluation levels to each of the 33 questions and submit ideas for improvements. <Major items in the questionnaire for assessing the effectiveness of the Board of Directors, etc.>

1. Composition of the Board of Directors 2. Status of submission of resolutions to the Board of Directors 3. Meetings and notification of meetings 4. Discussions held by directors 5. Minutes of meetings 6. Other items (provision of information, shareholders meetings, independent directors and corporate auditors)

<Summary of results> Questionnaire replies led to the conclusion that the Board of Directors has a well-balanced composition with executive directors who have sufficient knowledge, experience and skills involving all aspects of business operations and outside directors with outstanding knowledge as well as considerable expertise and experience concerning management. The Board of Directors is adequately fulfilling its responsibility to supervise and oversee management by operating properly and holding high-quality discussions. To further improve the effectiveness of the Board of Directors, the questionnaire replies showed that there is a need to think about ways to make discussions by directors more thorough and to create a framework for ensuring that outside directors receive sufficient information about management. The Company will carefully examine these issues and take steps for more improvements by continuing to distribute questionnaires, implementing a PDCA cycle and using other measures.

【Supplementary Principle 4-14-2 Policy for Training of Directors and Corporate Auditors】

Executive directors and full-time corporate auditors attend external training programs and the Company continuously holds periodic seminars led by experts concerning corporate governance, compliance, amendments to laws and other subjects. Overall, there are constant activities for the purpose of giving directors and corporate auditors information and knowledge about laws and other subjects required for performing their duties and supervising management. Newly elected outside directors and corporate auditors receive explanations about the Company’s business operations. Afterward, they receive explanations and other information about the Company’s operations and issues for the purpose of giving them a better understanding of the Hiroshima Gas Group. Furthermore, there is a framework for supplying information about the operating environment, trends in the gas industry and other subjects.

【Supplementary Principle 5-1 Policy for a Constructive Dialogue with Shareholders】

(1) The investor relations section responds to requests from shareholders and others for individual meetings. The basic policy is to use the investor relations executive for these meetings as needed. The Company is dedicated to constructive dialogues in order to maintain sound relationships with shareholders and others.

(2) The investor relations executive has overall responsibility for dialogues with shareholders. The Corporate Planning Department, Public Relations & Environment Department, and Accounting Department provide assistance.

(3) For a constructive dialogue with shareholders, the president holds earnings announcement meetings for securities analysts and information meetings for individual investors. In addition, the Company uses its website and other channels to disclose information. All these activities are aimed at supplying information about management policies, business strategies and other subjects involving business operations in order to give shareholders and others a better understanding of the Company.

(4) Opinions received at these meetings for analysts and shareholders and information from shareholder surveys are provided to senior management with regard to the Company’s management.

(5) The Company holds periodic and continuous education activities concerning the management of insider information. In particular, individuals involved with investor and shareholder dialogues exercise care to prevent leaks of insider information during these dialogues.

2. Capital Structure

Foreign Share Ownership Ratio Less than 10%

[Principal Shareholders]

Name or Designation Shares Held (Shares) Ratio (%)

Iwatani Corporation 7,607,428 11.18

Meiji Yasuda Life Insurance Company 3,855,000 5.66

Hiroshima Bank, Ltd. 2,840,000 4.17

Nippon Life Insurance Company 2,376,700 3.49

Hiroshima Electric Railway Co., Ltd. 1,860,000 2.73

Masayuki Yoneda 1,852,000 2.72

Dai-Ichi Life Insurance Co., Ltd. 1,780,000 2.61

Saibu Gas Co., Ltd. 1,420,000 2.08

Sojitz Corporation 1,350,000 1.98

Hiroshima Gas Group Employes shareholding Association 1,204,639 1.77

Controlling Shareholders (Excluding the Parent Company)

Not applicable

Parent Company None

Supplementary Explanation

Not applicable

3. Corporate Attributes

Stock Exchange Listings and Market Classification

First Section, Tokyo Stock Exchange

Fiscal Year-end March

Industry Electricity and gas business

Number of Employees at the End of the

Previous Fiscal Year (Consolidated)

1,000 or more

Net Sales in the Previous Fiscal Year

(Consolidated) Between 10 billion yen and 100 billion yen

Number of Consolidated Subsidiaries at

the End of the Previous Fiscal Year Between 10 and 50 companies

4. Policy for Measures to Protect Minority Shareholders When Conducting Transactions with Controlling Shareh

Not applicable

.

5. Other Exceptional Circumstances That May Have a Material Impact on Corporate Governance

Not applicable

Revised

II. Overview of Business Management Organization and Other Corporate Governance Systems Related to

Managerial Decision-Making, Business Execution, and Management Supervision

1. Items Related to Organizational Structure and Operations, etc.

Form of organization Company with corporate auditors

[Directors]

Number of Directors Stipulated in Articles of Incorporation

15

Term of Office for Directors Stipulated in Articles of Incorporation

1 year

Chair of the Board of Directors Chairman (except when post is concurrently held by the president)

Number of Directors 11

Election of Outside Directors Elected

Number of Outside Directors 4

Number of Outside Directors Designated

as Independent Directors 4

Relationship with Company(1)

Name Attributes Relationship with the Company*

a b c d e f g h i j k

Isao Sumihiro From another company ○

Masao Mukuda From another company ○ ○

Masato Kitamae From another company

Hiroshi Segawa From another company

*Relationship with the Company

○: Shows the item is/was applicable to the outside director either currently or until recently

△: Shows the item was applicable to the outside director in the past

●: Shows the item is/was applicable to a close relative of the outside director either currently or until recently

▲: Shows the item was applicable to a close relative of the outside director in the past

a. A person performing an executive role at the Company or its subsidiary

b. A person performing an executive role at or who is a non-executive director of the Company’s parent

c. A person performing an executive role at an affiliate who is another subsidiary of the Company’s parent

d. A person (or its person performing an executive role) whose major customers include the Company

e. A person (or its person performing an executive role) who is a major customer of the Company

f. A consultant, accountant or lawyer who receives a large amount of monetary compensation or other property (other than

remuneration as the outside director) from the Company

g. A major shareholder (or its person performing an executive role) of the Company

h. A person performing an executive role at a customer of the Company (other than those to which item d, e or f applies) (this item

applies only to the outside director himself/herself)

i. A person performing an executive role at an entity who has an outside director or corporate auditor from the Company (this item

applies only to the outside director himself/herself)

j. A person performing an executive role at an entity to which the Company makes donations (this item applies only to the outside

director himself/herself)

k. Others

Revised

No

Relationship with Company(2)

Name Independent

Director

Supplementary Information

Related to the Criteria Reason for Appointment

Isao Sumihiro ○ Mr. Sumihiro is representative director of The Hiroshima Bank, Ltd., the bank with which the Company conducts its normal banking transactions.

Mr. Sumihiro is appointed as an outside director in the anticipation that he will use his extensive experience and high level of insight as a manager of a financial institution to provide opinions on the Company’s management from an objective perspective. Also, he is highly independent, with no current or previous conflicts of interest with general shareholders. Hiroshima Gas believes he will be amply able to serve the role and function of providing supervision from an independent perspective and has accordingly designated him as an independent director.

Masao Mukuda ○ Mr. Mukuda is the representative director of Hiroshima Electric Railway Co., Ltd., to which the Company sells compressed natural gas. He was appointed as an outside director of the Company at the Company’s 159th General Ordinary Meeting of Shareholders on June 25, 2013. Also, the Company’s representative director, Kozo Tamura, was appointed as an outside director of Hiroshima Electric Railway Co., Ltd., at that company’s 103rd General Ordinary Meeting of Shareholders on June 28, 2012.

Mr. Mukuda is appointed as an outside director in the anticipation that he will use his position as a manager at an industrial corporation, as well as his extensive experience and high level of insight, to provide opinions on the Company’s management from an objective perspective. Also, he is highly independent, with no current or previous conflicts of interest with general shareholders. Hiroshima Gas believes he will be amply able to serve the role and function of providing supervision from an independent perspective and has accordingly designated him as an independent director.

Masato Kitamae ○ ― Mr. Kitamae is appointed as an outside director in the anticipation that he will use his extensive experience and high level of insight gained through many years of experience as a manager in the gas business to provide opinions on the Company’s management from an objective perspective. Also, he is highly independent, with no current or previous conflicts of interest with general shareholders. Hiroshima Gas believes he will be amply able to serve the role and function of providing supervision from an independent perspective and has accordingly designated him as an independent director.

Hiroshi Segawa ○ ― Mr. Segawa is appointed as an outside director in the anticipation that he will use his extensive experience and high level of insight as a manager in the energy business to provide opinions on the Company’s management from an objective perspective. Also, he is highly independent, with no current or previous conflicts of interest with general shareholders. Hiroshima Gas believes he will be amply able to serve the role and function of providing supervision from an independent perspective and has accordingly designated him as an independent director.

Existence of Advisory Committee(s) Comparable to Nomination Committee or Remuneration Committee

[Corporate Auditors]

Establishment of the Board of Corporate Auditors

Yes

Number of Corporate Auditors Stipulated in Articles of Incorporation

4

Number of Corporate Auditors 4

Revised

Cooperation between Corporate Auditors, Independent External Auditor and Internal Audit Division

With regard to financial auditors, the Company has an audit agreement in place with KPMG AZSA LLC. The corporate auditors and financial auditors meet regularly to discuss and exchange opinions on audit policy, audit reports and other matters.

The Audit Department, in accordance with the annual audit plan, performs audits to confirm the legality of business operations, compliance with internal rules and other items. Results of these audits are reported to the company president, corporate auditors, Internal Controls Department and others.

Election of Outside Corporate Auditors Elected

Number of Outside Corporate Auditors 2

Number of Outside Corporate Auditors

Designated as Independent Auditors 2

Relationship with the Company (1)

Name Attributes Relationship with the Company*

a b c d e f g h i j k l m

Yasutoshi Takei Lawyer

Yuji Tanaka From another company

* Relationship with the Company

○: Shows the item is/was applicable to the outside corporate auditor either currently or until recently

△: Shows the item was applicable to the outside corporate auditor in the past

●: Shows the item is/was applicable to a close relative of the outside corporate auditor either currently or until recently

▲: Shows the item was applicable to a close relative of the outside corporate auditor in the past

a. A person performing an executive role at the Company or its subsidiary

b. Non-executive director or accounting advisor of the Company or its subsidiary

c. A person performing an executive role at or who is a non-executive director of the Company’s parent

d. A corporate auditor of the Company’s parent

e. A person performing an executive role at an affiliate who is another subsidiary of the Company’s parent

f. A person (or its person performing an executive role) whose major customers include the Company

g. A person (or its person performing an executive role) who is a major customer of the Company

h. A consultant, accountant or lawyer who receives a large amount of monetary compensation or other property (other than

remuneration as the outside corporate auditor) from the Company

i. A major shareholder (or its person performing an executive role) of the Company

j. A person performing an executive role at a customer of the Company (other than those to which item f, g or h applies) (this item

applies only to the outside corporate auditor himself/herself)

k. A person performing an executive role at an entity who has an outside director or corporate auditor from the Company (this item

applies only to the outside corporate auditor himself/herself)

l. A person performing an executive role at an entity to which the Company makes donations (this item applies only to the outside

corporate auditor himself/herself)

m. Others

6

Individual compensation is not disclosed.

Relationship with the Company (2)

Name Independent

Auditor


Related to the Criteria Reason for Appointment

Yasutoshi Takei ○ ― Mr. Takei is appointed as an outside corporate auditor in the anticipation that he will audit the Company’s management by utilizing his knowledge and experience as a legal specialist. Also, he is highly independent, with no current or previous conflicts of interest with general shareholders. Hiroshima Gas believes he will be amply able to serve the role and function of conducting audits from an independent perspective and has accordingly designated him as an independent auditor.

Yuji Tanaka ○ ― Mr. Tanaka is appointed as an outside corporate auditor in the anticipation that he will reinforce the independence of auditing and audit the Company by utilizing the extensive experience and high level of insight gained during many years in the gas business. Also, he is highly independent, with no current or previous conflicts of interest with general shareholders. Hiroshima Gas believes he will be amply able to serve the role and function of conducting audits from an independent perspective and has accordingly designated him as an independent auditor.

[Independent Directors/Corporate Auditors]

Number of Independent Directors/Corporate Auditors

Other Items Related to Independent Directors/Corporate Auditors

All of the Company’s directors and corporate auditors who qualify as independent directors/corporate auditors are so designated.

[Incentives]

Status of Implementation of Measures to Grant Incentives to Directors None implemented


The Company is considering revising its system of executive compensation, including compensation linked to operating performance.

Grantees of Stock Options


―

[Directors’ Compensation]

Disclosure Status (of Compensation for Individual Directors)


Content of Executive Compensation (Compensation Paid in the Fiscal Year Ended March 31, 2016)

Total compensation paid to directors (fourteen directors): 250 million yen (of which, 28 million yen paid to five outside directors)

Total compensation paid to corporate auditors(five corporate auditors): 53 million yen (of which, 14 million yen paid to two outside corporate auditors)

Note: This compensation includes the compensation of three directors and one corporate auditor who completed their terms of office at the close of the ordinary general meeting of shareholders on June 23, 2015 and were not candidates for reelection.

Revised

No

Existence of Policy for Determining Amount and Calculation Method of Compensation

Disclosed Details of Policy for Determining Amount and Calculation Method of Compensation

―

[Support System for Outside Directors (Outside Corporate Auditors)]

Materials are sent and explained beforehand, as necessary.

2. Items Related to Functions of Business Execution, Audits and Supervision, Nomination and Decisions on

Compensation, etc. (Overview of Current Corporate Governance System)

<Board of Directors> The Board of Directors has eleven members, including four outside directors. Directors meet once each month as a rule and at other times as needed. The Board of Directors makes decisions about business operations and supervises how directors with authority for business units conduct their respective operations. In addition, the directors receive reports on the operations of group companies in order to perform overall supervision of management.

< Executive Board > The Executive Board consists of six directors who are also executive officers, two Audit & Supervisory board member and seven other executive officers. This meeting takes place twice each month as a rule and at other times as needed. The Executive Board performs decision-making on behalf of the representative director within the scope of authority delegated by the Board of Directors. The committee also receives reports about the status of management and business operations of group companies from the Group Management Committee, which is chaired by the general manager of the Corporate Operations Division, and oversees the management of all group companies.

<Board of Corporate Auditors>

The Board of Corporate Auditors has four members that include two outside corporate auditors. All corporate auditors perform investigations in accordance with audit policies and plans established by the Board of Corporate Auditors. The corporate auditors also attend meetings of the Board of Directors and other important meetings. The corporate auditors audit the performance of the directors by studying the status of business operations and finances. For subsidiaries, the corporate auditors ask for business reports from subsidiaries as needed and study the status of business operations and finances.

<Audit Department>

The Audit Department, in accordance with the annual audit plan, performs audits to confirm the legality of business operations, compliance with internal rules and other items. Results of these audits are reported to the company president, corporate auditors, Internal Controls Department and others.

<Status of Initiatives to Reinforce the Corporate Auditing Function> This information is contained in the “[Corporate Auditors]” section of the “Overview of Business Management Organization and Other Corporate Governance Systems Related to Managerial Decision-Making, Business Execution, and Management Supervision.”

3. Reasons for Selecting the Current Corporate Governance System

To enhance management and transparency and reinforce the Board of Directors supervisory function, four of the Company’s eleven directors are outside directors. To augment the independence of auditing, two of the four corporate auditors are outside corporate auditors.

To speed execution and separate management from execution, the Company has adopted a system of executive officers. To clarify responsibilities each fiscal year, the terms of office for directors and executive officers have been set at one year. In these ways, the Company employs governance systems aimed at achieving sustained increases in corporate value.

III. Status of Implementation of Measures Related to Shareholders and Other Stakeholders

1. Measures to Revitalize the General Meeting of Shareholders and Facilitate Exercise of Voting Rights


Early Notification of Shareholders Meeting

Notices are sent at least three business days prior to the legal deadline.

Shareholders meeting scheduling to avoid days with many other shareholders meetings

The shareholders meeting will be held on June 24, 2016.

Allowing Electronic Exercise of Voting Rights

An electronic voting system is used to allow shareholders to submit votes using the Internet and other electronic methods.

Participation in electronic voting platform and other measures to improve voting convenience for institutional investors

The Company uses the electronic voting platform for institutional investors operated by ICJ Co., Ltd.

Other items

Shareholders meeting notices are posted on the Company’s website.

2. Investor Relations Activities


Explanation

Provided by the

Representative

Himself

Holding Regular Meetings for Individual Investors

Briefings for individual investors are held around twice each year,

with securities companies and other entities serving as the

interface for gathering investors.

Yes

Holding Regular Meetings for Analysts

and Institutional Investors

Analyst briefings are held twice each year (at the interim and

year-end results announcements). Yes

Posting IR Information on the Company Website

Financial reports, disclosure materials other than financial reports,

annual securities reports, CSR reports and other information are

posted on the Company’s website, at http://www.hiroshima-

gas.co.jp/com/ir/.

Establishment of an Investor Relations Department

The General affairs Department

3. Measures That Consider the Interests of Stakeholders


Promotion of Environmental Protection, CSR and Other Activities

With regard to environmental issues, the Hiroshima Gas Group has formulated

environmental behavioral guidelines, based on the principle that “The Hiroshima Gas

Group strives to ensure the efficient use of energy and resources through its business

activities, promotes the protection of the regional and global environments, and

contributes to the sustainable development of society.” Specifically, the Company

works to reduce customers’ environmental impacts as well as impacts of its own

business activities and contribute to the protection of the regional environment

Revised

Revised

http://www.hiroshima-gas.co.jp/com/ir/



IV. Items Related to the Internal Control System

1. Basic Policy and Operational Status of the Internal Control System

The Company has created the internal control system described below to ensure operational appropriateness and achieve sustainable increases in corporate value.

1. Role of Individual Management Organizations within the Internal Control System

(1) Board of Directors

The Board of Directors determines the content of internal controls and supervises the state of execution of internal

control in the execution of business by the directors and executive officers. As the content of internal controls needs to

be constantly reviewed, the Board of Directors determines necessary improvements to the content of internal controls

by receiving reports from the director in charge, the Audit Department and the corporate auditors.

(2) Representative Director

The representative director and other directors in charge of business execution are responsible for implementing the

internal controls determined by the Board of Directors and maintaining their functions. The representative director

proposes internal control system improvements to the Board of Directors after hearing the opinions of members of the

Audit Department, corporate auditors, other directors and executive officers.

(3) Board of Corporate Auditors

Based on the content of internal control determined by the Board of Directors, the Board of Corporate Auditors audits

the maintenance and implementation of internal controls by the representative director and other directors and

executive officers in charge of business execution.

The Board of Corporate Auditors receives reports on the status of internal control from the Audit Department and

financial auditor, and reports to the representative director or Board of Directors on any defects requiring improvement

from an internal control perspective.

2. Structure of Corporate Management Organizations

(1) System of Executive Officers

The Company introduced a system of executive officers in April 2004 to speed execution and separate management

from execution, and the Company strives to construct more highly effective corporate governance systems. (2) Terms of Office of Directors and Executive Officers

To clarify responsibilities for each business year, the term of office of directors and executive officers is set at one

year.

(3) Composition of the Board of Directors

To enhance deliberation and augment the soundness and transparency of the decision-making process, in June 2009

the Board of Directors reduced the number of executive directors and increased the ratio of outside directors. The

board conducts decision-making by receiving reports and explanations on matters deliberated by the Executive

Board, which is composed of executive directors and executive officers. (4) Composition of the Board of Corporate Auditors

To reinforce audit independence, two of the four members of the Board of Corporate Auditors are outside corporate

auditors. The board receives regular reports from the Audit Department, which reports directly to the president, and

the accounting auditor. The Board of Corporate Auditors consults with these bodies as necessary and audits the

legality of business execution.

3. Risk Management and Compliance Systems

The following systems are in place to manage various types of risk and ensure the legality of business execution by

employees. (1) Response to Natural Disasters

The Company has numerous measures to be prepared for a major natural disaster or other event that affects the stability and safety of the supply of gas to customers. In accordance with Guidelines for Responses to Earthquakes and Other Disasters, which prescribes rules involving disasters, we have established a system for emergency information communications if a disaster or accident occurs, a system emergency orders and instructions, and other systems. There are also periodic disaster response drills. Minimizing the spread of damage following a disaster is the primary objective of these activities.

(2) Management of Records

The Company has drawn up regulations related to information related to the execution of business by the Board of

Directors and other directors, such as minutes, approval documents and agreements, as well as media for storing

these documents, and exercises due caution in their storage and management.

(3) Ensuring the Security of Information Systems The Company has an Information Security Policy to deal with risks involving information leaks and similar incidents. There is an information security framework centered on the Information Security Committee. We use this framework for various activities to prevent information leaks, such as education programs about the handling of personal information. In addition, there are rules for information disclosure and other actions if a problem occurs in order to respond swiftly and properly.

(4) Compliance Structure

By conducting regular compliance training and awareness surveys, the Company seeks to foster an awareness of

compliance among executives and employees and cultivate a corporate culture that permits no legal violations.

In April 2004, the Company established a Corporate Ethics Committee that includes the president and two outside

attorneys, thereby putting in place a system for determining compliance measures, ascertaining the system’s

operational status and deliberating corrective measures. The Company has also introduced an Employee Consultation

and Reporting System that enables Group employees to consult with and report directly to members of the Corporate

Ethics Committee, thereby enhancing the self-corrective function.

The Guidelines for Behavioral for Hiroshima Gas Group Employee, which we formulated prior to the launch of this

system, were revised in September 2009. The Company also endeavors to ensure employee awareness by

distributing Compliance Cards.

(5) Ensuring the Appropriateness of Financial Reporting

The Company has formulated accounting and other internal regulations. In addition to complying thoroughly with

accounting standards and other related legislation, the Company works to ensure appropriateness by establishing and

improving systems based on its Internal Control System Policies Related to Financial Reporting, which target the

Group.

(6) Ensuring the Appropriateness of Operations by the Corporate Group

With regard to the execution of operations by Group companies, by establishing regulations that form the basis for the

execution of operations the Company strive to prevent the manifestation of risk. In addition, executives of key

consolidated companies serve concurrently as executives of the parent company. This arrangement allows the status

of operational execution to be ascertained directly via each company’s Board of Directors. To reinforce the

supervisory function of each Group company, in May 2009 the Company established the Internal Control Department.

The Group Management Committee was also established in September 2009 to perform advance deliberation on

important matters and report the results of its deliberations to the department. Furthermore, the corporate auditors and

Audit Department regularly conduct operational audits of Group companies, and audits are performed by the financial

auditor in relation to their financial status. The Internal Control Department receives reports of important information.

Based on this information, the Board of Directors deliberates and formulates Group management policy for the

Hiroshima Gas Group.

2. Basic Policy and Efforts to Exclude Antisocial Forces

The Guidelines for Behavioral for Hiroshima Gas Group Employee call for the Hiroshima Gas Group to comply with laws

and social norms and behave as a good corporate citizen. One of action principles in these guidelines prohibits any

transactions with antisocial forces, and the Group complies thoroughly with this principle.

Based on these guidelines, the Group positions the severing of any relationships with antisocial forces as an important

compliance factor. Corresponding supervisory departments have been established at Group companies, and the Group

works to prevent any such transactions.

As a member of a prefectural-level association to prevent antisocial forces, Hiroshima Gas attends training sessions

conducted by the association and strives to gather information. The Company decides specific response methods

depending on the incident, liaising with the police, legal offices and other outside institutions as necessary.

V. Others

1. Adoption of Takeover Defense Measures

Adoption of Takeover Defense Measures No


2. Other Items Related to the Corporate Governance System, etc. The status of the Company’s internal systems related to the timely disclosure of corporate information is described below.

1. Basic Policy on the Timely Disclosure of Corporate Information

With regard to information concerning the Company’s business, operations and operating performance that could have a significant impact

on the investment decisions of shareholders and investors, the Company strives to determine the importance of the information and

appropriateness of disclosing the information in a timely manner and communicate such corporate information to all shareholders and

investors impartially, accurately and promptly. To this end, for the handling of important information targeted for timely disclosure the

Company has formulated internal regulations covering insider trading regulations on the management of important facts and has prepared

an internal structure.

2. Internal Structure Related to the Timely Disclosure of Corporate Information

○ In accordance with its internal regulations (Internal Information Management Regulations), the Company strictly manages among its

executives and employees information subject to timely disclosure as provided by the Tokyo Stock Exchange’s timely disclosure

regulations to ensure against the leak or loss of such information.

○ With regard to corporate information for timely disclosure, the person responsible for handling information—the general manager of the

General Affairs Department—discusses the necessity of timely disclosure, as well as disclosure timing and method, with the Accounting

Department and the Management Planning Department and discloses information in a timely and appropriate manner to the securities

exchange and news organizations.

○ Matters brought up for discussion and reported to the Executive Committee by business divisions and Group companies are

communicated in advance to the person responsible for handling information—the general manager of the General Affairs Department—

to prevent disclosure information from being overlooked.

○ Of corporate information for timely disclosure, in principle the disclosure of important information requires the approval of the

representative director.

Revised

Corporate Governance Structure

Shareholders Meeting

Election/Termination Election/Termination Election/Termination

Representative Directors

Executive Directors

Executive Officers

Audit Department

Executive Board

Corporate Ethics Committee

Group Management Committee Internal Control Committee

Hiroshima Gas Group CEO Conference

Directors/Board of Directors

Audits

Information Security Committee

Cooperation

Corporate Auditors/ Board of Corporate Auditors

Financial Auditor

Audits

Oversight Reports

Reports

Contact for Employee Consultations and

Reports

Discussions /Reports

(Representative Directors, Executive Directors, Executive Officers)

Sharing of information and development of business policies

Business Units Group Companies

Sharing of information and development of business policies

Discussions /Reports

Internal audit

Cooperation Cooperation

i. basic philosophy on corporate governance, capital

Documents